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Construction Update: Arbitration Agreements – Do They Apply to Third Parties?

07 November 2017

In a recent Circuit Court case[1], Mr and Mrs Maguire entered into a contract to buy a car. Mrs Maguire signed the standard terms and conditions of the seller (MSL) of the car, which included an arbitration clause. The contract between the plaintiffs and the manufacturer of the car (Mazda) did not contain an arbitration agreement. The plaintiffs claimed that the car was defective and commenced proceedings against MSL and Mazda.

The Circuit Court granted applications by the defendants to refer the plaintiff’s proceedings against MSL to arbitration and to suspend the court proceedings against Mazda pending the outcome of the arbitration. The couple appealed both of these decisions to the High Court.

The law

The UNCITRAL Model Law on arbitration was incorporated into the Arbitration Act 2010 (2010 Act). Article 8(1) of the Model Law obliges a court, following application, to refer a contract dispute to arbitration where the contract contains an arbitration agreement. However, arbitration cannot be recommended if the court finds the arbitration agreement “is null and void, inoperative or incapable of being performed”. Article 8(1) is a mandatory provision, so if the arbitration agreement satisfies these conditions, the court must refer the dispute to arbitration. Section 11(a) of the 2010 Act states that there shall be no appeal against referring the proceedings to arbitration.

The judgment

The High Court held that the decision to refer Mrs Maguire’s claim against MSL to arbitration was not appealable. However, the High Court did overrule the orders referring Mr Maguire’s claim against MSL to arbitration and the claim against Mazda.

Mr Justice Barrett held that in circumstances where Mr Maguire had not entered into an arbitration agreement with MSL, then Article 8(1) of the Model Law did not apply and he could not be forced to participate in arbitration.

Mr Justice Barrett decided that while an arbitration agreement can apply to a non-party, more than a “bare commercial or legal connection” was required for the non-party to be bound to it. In this case, the court determined that Mazda’s connection to the arbitration agreement between Mrs Maguire and MSL was not sufficient to warrant the suspension of the proceedings pending the outcome of the claim against MSL in arbitration. The court held that separate proceedings that are factually related could proceed in arbitration and the courts simultaneously.

Conclusion

The Irish courts are generally very supportive of arbitration agreements. However, this judgment makes clear that a party who has not entered into an arbitration agreement will not be forced to arbitrate their dispute simply because that dispute is factually related to a separate dispute already in arbitration. The case serves as a timely reminder of the importance of ensuring that dispute resolution provisions are drafted carefully in construction contracts.

For more information on arbitration agreements in development contracts, please contact a member of our Construction team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.